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| Sunday, 26 January 2003 |
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| News Business Features Editorial
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Trends in the real estate market by J. Baratha Dodankotuwa Land subdivision is predominantly taking place in the outskirts of the Colombo City due to reasons such as moderate land values, better infrastructure, favourable environment for living and relaxing, and high land values and lack of land for residential development. As explained, land subdivision is a matter to live with, as there are few alternatives to change the pattern due to the sensitivity of the issue. There are possible solutions such as declaration of high-density zones in selected localities, development of high-rise apartments and buildings by both private sector and Government institutes and the prohibition of land subdivision in selected areas under a special law or enactment. Development of detached houses along major roads and change of land use As a result of land subdivision, the development of detached single or two-storey houses is frequent along major roads. This can be viewed as the final outcome of the unnoticed planning setback in the congested area, a continuous permission to unplanned urban sprawl. This trend has a positive impact on many other activities, i.e. forward and backward linkages of the economy such as construction activities may boost other sectors. If this trend is continuously unchecked, the future land use planning and physical planning will become very difficult if not impossible as in many instances in Sri Lanka. The supply of infrastructure will become extremely difficult while improvement of the quality of service will become a nightmare. Traffic congestion will also become unsolvable. Change of land use has become a common phenomenon, especially in major cities. Noteworthy examples are Galle Road, Duplication Road, High Level Road, Negombo Road and Kandy Road. Many large houses have been converted to either restaurants or offices. In the outskirts of Colombo, agricultural land is converted to residential and commercial complexes while industrial estates and parks have also emerged under government patronage. However, residential cities such as Millennium City at Athurugiriya and Perth Estate at Horana are commendable initiatives by private sector real estate developers. High-rise buildings for hotels, shops and offices in Colombo Not a single 10-storey building could be found in Sri Lanka out of the Colombo City. The second largest city after Colombo, Dehiwela-Mt. Lavinia, only looks at the overlying majesty of Colombo, which has the waterfront development at Echelon Square, where five buildings with more than 10 storeys are located including the World Trade Centre. However, in Sri Lanka, intensive land use has always been undermined. Although Colombo boasts of skyscrapers going upto 40 storeys, the number of high-rises in the city is still very low compared to other cities in Asia or the West. For example, Kuala Lumpur, which has a population of only 1.5 million, has the world's tallest building, Petronas. Hong Kong and Singapore, though they are more populated than Colombo, are fruitful examples of making intensive use of limited land, especially in the Central Business District (CDB). Colombo and other major cities in Sri Lanka should follow their South East Asian neighbours in real estate development to face the challenges of the 21st century with respect to scarcity of land. It is advisable to provide supportive services such as parking and fire prevention with all other uninterrupted building facilities to make them 'intelligent buildings'. Competitive advertising for real estate If all real estate were considered as an item sold in the market, the advertising cost would be alarming. Real estate uses all modes of advertising from daily newspapers to cyber space. A glance through a weekend English newspaper revealed that nearly one fourth of the advertisements were for real estate followed by education, banks and financial institutes respectively. However, there is a variation of advertising with respect to seasons. However, attention should be paid to advertising modes such as banners, cut-outs and hoardings, some of which are harmful to the environment and day-to-day activities of humans. Stagnation or decline of land prices in some areas Though land prices continue to increase in some areas, the present trend in the real estate market is stagnant or declining prices, especially for rentals. For example, between 1978 to 1983, land prices in Colombo escalated by more than 20-30 times, whereas from 1994 to 2000, there has been no change only price declines. Regarding rentals, the World Trade Centre, from its inception in 1997 to date, has not changed its rentals due to insufficient demand for tenants. This has been experienced by many office and commercial buildings even in prime locations in Colombo. There are buildings that cannot find tenants for months. Due to the competition among land sale companies, the land price in the outskirts of Colombo and other major cities is also very competitive, creating a buyer's market, where the land price is lower. Various buying modes are also available so that buyers can select a method which suits them. However, this is not common for all transactions. Due to locational advantages, for example, some places have potential commercial values for which the demand is also high, creating higher land prices - a seller's market. Behaviour of land prices in recent years show development trend and direction According to the survey carried out recently, the highest land price shown in Colombo, Fort, Pettah and Kollupitiya, range from Rs. 2 to 4 million per perch. However, very recent land prices could not be found for comparison due to lack of transactions as vacant land for sale has been very rare in this region. The second highest land price for commercial and residential complexes is along Galle Road, followed by High Level Road. Land prices decrease along the way as a universal principle; the further the land is from the CDB, the lower its price. However, land prices are comparatively high when they reach a centre or nodal point, creating a fluctuation. For example, along High Level Road, centres like Nugegoda (Rs. 1.5 million per perch) and Maharagama (Rs. 800,000 to one million rupees per perch) show very high land values. The value of land is high on both sides of the frontage along major roads. This has created a very severe problem for those who need to find a residential lot along major roads from Colombo. The highest to lower land price along major roads from Colombo are Colombo-Galle Road, Colombo-Ratnapura Road (High Level Road), Colombo-Kandy Road, Colombo-Negombo Road, Colombo-New Kandy Road (via Kaduwela), Colombo-Horana Road and Colombo-Avissawella Road (Old Road) respectively. This trend and behaviour of the land price have been compatible with the recent development activities taking place in respective directions as well. Change of government policy for upgrading under-served settlements with the inception of REEL (Real Estate Exchange Limited) and Sustainable Townships Program, under Government patronage Even though Sri Lanka has many initiatives for housing development, it has no clear housing policy to address the problems of low-income people. The REEL, under government patronage and with private sector blessings, is trying to solve the problem of under-served settlements of Colombo numbering 66,000 households, which comprise nearly 50 per cent of the city's population. The motto of REEL is 'Homes for people and land for urban development'. Although REEL's approach is rather different from conventional government organisations, it comprises key government agencies whose lands have been encroached by dwellers - Sustainable Township Program (STP), Urban Development Authority, National Housing Development Authority, Sri Lanka Land Reclamation and Development Corporation and Colombo Municipal Council. As STP's management arm, REEL will manage the entire commercial and construction aspects of the program. Private sector developers, contractors, banks, financial institutions and other specialised service agencies directly participate in the construction of high-rise flats for the beneficiaries. REEL will facilitate this process on a partnership and participation basis, according to prudent market principles. At the end of the program, the REEL partners will receive a market price for about 600-700 acres of their encroached prime lands in Colombo, less the cost of re-housing the 66,000 households that are currently occupying them. This program is under way. Although the approach is new to Sri Lanka, other countries have similar or more liberalised market approaches for real estate and city development. Proposal with a mission The proposals and challenges of the real estate market in Sri Lanka should be well studied as Sri Lanka lacks analysed information for investors in real estate. Hence, it is essential to take an inter-disciplinary approach of research combined with computer software such as Geographical Information Systems for real estate planning and development activities. This article intends to suggest a 'New Town Development Corporation' or 'Housing and Urban Development Corporation' to face the challenges of the 21st century in real estate planning and development. Many government and local government organisations directly or indirectly engage in city planning and real estate development and provide supporting services to local cities. The Urban Development Authority, National Housing Development Authority, local authorities, Road Development Authority, Board of Investment, Town and Country Planning Department, Water Supply and Drainage Board, Ceylon Electricity Board, Sri Lanka Telecom and many other acts and ordinances along with their respective organisations collectively design and manage the urban formation in Sri Lanka. More than 200 registered private sector companies are engaged in real estate development and related activities, mainly in the Colombo Metropolitan Region. Most of these companies are involved in land subdivision activities, as there is a very high demand for land and houses in the region. We should now decide whether we continue the same approach in urban real estate development or settle for a challenging futuristic approach to address the setbacks of real estate development and planning. It is with this view the following mechanism is introduced as a proposal to control the unplanned urban sprawl along major roads from Colombo. The formation of a Housing and Urban Development Corporation (HUDC) or New Town Development Corporation is the main task of the proposal. The HUDC is represented mainly by planning organisations of the government sector and interested private sector real estate developers. Why Housing and Urban Development Corporation? It has been seen in many developed and developing countries that sustainable city development cannot be achieved through the public sector alone. Hence, the market forces in an open economy should be incorporated in a sensible manner to obtain the highest and best use of the limited real estate resources in an urban area. In view of this, many countries and cities have undergone the challenge of creating a harmonious blend between public and private sector property developers and managers. With the consent of both parties, a Housing and Urban Development Corporation or New Town Development Corporation can be formed. HUDC has the power to acquire by agreement or compulsory purchase, any necessary land or property in the area. In reality, it is a statutory speculative builder with the job of building a town, attracting customers, selling and letting real estate and services and showing a return on capital, like any other commercial undertaking. The most profitable revenue-earners include factory sites, shops, offices and houses. This approach can be combined with the proposed growth centres under the Colombo Metropolitan Regional Structure Plan as an implementation strategy. Conclusion The behaviour of the real estate market and its activities have been dynamic, irrespective of the socio-economic achievements and disturbances of the nation during the last two decades. Changes have taken place with regard to construction and communication technology and taste and income of the public. Some areas in Colombo look as if the country is ready to face the challenges of the 21st century in the sphere of real estate development.As a result, challenges of the real estate professionals have also changed. Presently, it requires a more pragmatic approach with sound conceptual background to face the challenges of constant changes of real estate development activities. Being a limited factor, land should be prudently utilised and managed. It is not possible to have a land resource policy without an environmental policy. Thus, environment is an area for high consideration by professionals in real estate both in private and public sectors. They have a key role to play as learned people working for responsible organisations. In this context, they have to work as a team rather than as a facilitator or administrator. If the present situation continues for another decade, and the finger continues to be directed at another party, the country will lose many opportunities in the real estate and physical development scenario. The role of academic disciplines is also everlasting to train professionals to assume meaningful roles in the sustainable development process of the country. Future cities of Sri Lanka, in this context, will be planned from the outset not by public sector alone but by responsive combination of public and private sector real estate planners and developers with the maximum public participation. **************** The writer is Senior Lecturer, Department of Business Economics, Faculty of Management Studies and Commerce of the University of Sri Jayewardenepura. |
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